Kevin Drum on Bush and Oil

Kevin has a post on a recent speech by Bush where Bush talked about oil. Needless to say Kevin takes pretty much a dim view of the entire speech from reading his post. Here are the sections that Kevin took issue with,

Bush called on Americans to “pitch in” and conserve gas by reducing non-essential travel, teaming up in carpools and using mass transit.

….Bush said the administration is also continuing to waive rules that require special gasoline and diesel blends in some parts of the country in an effort to cut pollution.

….”These storms show that we need additional capacity in America to be able to meet the needs of the American people,” Bush said. He said he would ask Congress to look at expediting the ability of the country’s refiners to expand or build new refineries.

He said alternative sources of energy needed to be developed, too. “That’s why I believe so strongly in nuclear power,” Bush said.

I sometimes get the feeling that Kevin’s dislike for Bush has gotten in the way of his ability to think clearly. For example, Kevin’s first complaint is that Bush hasn’t implemented a conservation plan due to Katrina and Rita. Granted simply asking people to conserve gasoline probably isn’t going to do much, but then again trying to get a government plan that…you know…actually works in place would probably happen right about the time that things settled down and got back to normal. For example, during the California electricity crisis there was a program implemented in the summer of 2001 called the 20/20 program. The idea was to give people 20% off their bill if they reduced consumption by 20%. Sounds like a great idea, except for the fact that the California electricity market was pretty much back to normal due to the flexible price caps.

Kevin’s next complaint is about the waiving of the requirements for gasoline blends. This is actually a good thing, IMO. Kevin’s complaint about the enviornment is completely specious in that what is really important is not that there is a blend of gasoline that is bad for the environment, but that there is simply one blend nation wide. That is, right now all the various blends (click here to see a map) create smaller markets where refineries producing one type of blend cannot quickly (nor cheaply) switch over to another blend. This adds to the price volatility for gasoline. Picking one blend for the entire country would create a national market vs. smaller local markets. This would help reduce price volatility and reduce the market power of oil refiners. Note, that it isn’t which blend that is chosen, more that there is a nation wide standard.

Kevin’s complaint about nuclear power is also rather curious. Kevin has blogged repeatedly on peak oil, and clearly reading just a couple of these posts will indicate that Kevin believes in peak oil. So, what does he think we’ll use as an energy source when there is no more oil (at a cheap price or in sufficient quantities for automobiles)? Beats me, but apparently he doesn’t think it will be nuclear. Maybe he’ll build the first wood burning car or something. So while Kevin is right that expanding the amount of nuclear electricity generation will likely have little or no impact on oil consumption, refining, etc. in the short run it could be one of the alternatives as we approach the peak in oil production and the price starts to rise.

Further, I think Kevin’s comment here,

…an almost palpable eagerness to use any excuse to strip away environmental rules the energy industry dislikes….

ir rather naive. My guess is that the oil/gasoline industry likes things just the way they are. After all their profits are skyrocketing as prices climb. Loosening up environmental regulations might very well result in competition from new entrants. This will drive down the price and profits.

But lest people think I always disagree with Kevin, his comment about expanding and implementing new tax breaks for the oil industry is quite correct. The oil industry has skyrocketing profits, prices are high and look like they’ll stay there. Sure, the last two hurricanes caused some damage, but hey, that is what the pricing mechanism is for, passing along those costs that can be passed along. Extending tax breaks is merely corporate welfare and/or an attempt to keep consumers happy by shifting the burden of the price increases from consumers to tax payers.

I have hope that someday Kevin will actually post something that deals with energy economics that is actually based on sound reasoning and not progressive fantasy.

FILED UNDER: Economics and Business, , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Herb says:

    Steve:

    The “No Takers” came from a quote by the Saudi Oil Minister at the Oil Meeting in Johannesburg the other day.

    You can find that quote along with some interesting quotes from Ray Tillman, Pres of Exxon Mobil. You can find it here entitled “oil Reserves are Double previous Estimates.

    http://news.independent.co.uk/business/news

    Let me know if you have a problem




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  2. bryan says:

    Maybe he’ll build the first wood burning car or something.

    But what will happen when we reach “peak tree”?!?




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  3. DL says:

    Oil? Drum? You’ve got to be kidding!




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  4. odograph says:

    First off, I think the important thing is that Bush .. the very last man we’d expect to make a “drive less” speech, made one. I think this is what they call a “tipping point” and we should expect to see conservation shake through society and government.

    Some of us, even conservatives and Republicans, were already there. I’ve got my Prius, and even though I don’t agree with the green neo-cons (or whatever you call them) on everything, I’ve got to admit they (Woolsey) had their Priuses even before I had mine.

    Heck, there is a guy I see now and then with a Honda Insight. His license plate frame says something like “suck on this, OPEC” … not at all an environmentally motivated message … maybe even a conservative.




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  5. huck says: